A laboratory of hot, bubbling jars of bacteria near London holds the key to curbing CO2 pollution from cars, says Hamish Curran, Chief Executive of Britain's TMO Renewables.

"We believe what we've found is not far from the silver bullet, and our demonstration plant will be about showing that," Curran told Reuters during a visit to the group's laboratories in Guildford on Wednesday.

TMO is one of many companies worldwide searching for an economic way to turn woody waste products into ethanol, which can be used to supplement or even replace gasoline in cars.

"We have the organism people have dreamt of -- it eats nearly anything and it makes ethanol really quickly," he added.

Number one ethanol supplier, the United States, already produces about 6 billion gallons of ethanol a year from corn to use as motor fuel, and Brazil brewed around 4 billion gallons of ethanol last year from sugar cane.

But biofuel producers have suffered increasing criticism this year for contributing to deforestation, stealing scant food resources and using climate-damaging fossil fuels to power their "green" facilities.

By contrast, cellulosic ethanol, like TMO's, made from wood chips, grass and agricultural and garden waste, is seen as a truly green solution. The Bush administration has rolled out nearly $1 billion in funds for research into ethanol and cellulosic fuels.

GENETIC MANIPULATION

"We have six competitors in the United States, and from what we can see, we think we're four years ahead of them," said Curran.

Workers started pouring cement last week to lay the foundations for TMO's demonstration plant, which should come on stream early in 2008, running at around 65 degrees Celsius and producing 1 million liters of ethanol a year.

The company took about two years to identify and refine the organism that drives the process -- a heat-loving rod-shaped bacteria of the geobacillus family, which it calls TM242. It is 2 microns long, about one fiftieth the diameter of a human hair.

"The wild-type came from a compost heap, and the reason we went looking there was because we wanted an organism that could eat multiple feedstocks," said Curran.

"The ones that enter the fray and kill all others as the temperature rises are the thermophiles, like our beasty," he added.

Genetic manipulation increased the strain's metabolic rate and focused it on producing ethanol 300 times more efficiently than the original wild strain.

"We see the feedstocks being regional," said Curran. "In the UK it would be wheat straw -- look in the fields, there are straw bales just lying there; in Scandinavia it would be woodchips; in the U.S. corn belt it would be the five foot six of plant that isn't cob."

PAY-BACK

TMO is initially focusing on the United States, which has a mature market in which to sell the ethanol. It hopes existing producers will bolt the TMO technology onto their own plants, using their waste grain to produce extra ethanol, thereby boosting production.

"The cost of bolting on and building gives a 2-year pay-back, with a handsome rate of return for both parties," said Curran.

Europe, which has relatively few established ethanol refineries, could move straight to cellulosic technology as it develops its industry to help meet targets of cutting CO2 emissions 20 percent below 1990 levels by 2020.

"In Europe, we can go to them and say 'why are you messing with grain?'... We see the opportunity for Europe to skip a generation," said Curran.

The group is funded for its current plans, having raised 15 million pounds ($30 million) in May from various funds including Aegon Asset Management, Charles Stanley and Liberty Square Asset Management.

"An IPO is one of the next funding options available, but we're not 100 percent married to the idea. We're funded until the end of 2008, so if we went earlier, it would be because we had the opportunity to accelerate our plans."

There is more to TMO, however, than just one bacteria that eats woody waste and excretes ethanol.

"We have an interesting beasty that was found on the side of a volcano in Montserrat just before it exploded (in 1995)," said Curran. "That one eats vegetable oil, drinks methanol and shits biodiesel."